A federal appellate court reversed a ruling that would have forced a homeowner’s insurer to pay up to $300,000 in damages to a woman who had been sexually abused by its policyholder, despite exclusions in the policy for intentional acts.
Attorney Tyler Thomas Dugger of Billings, Montana, said the lawsuit filed by American Reliable Insurance Co. was unusual in two ways. First, while insurers routinely request declaratory judgments that they don’t owe coverage, such cases rarely go to trial. Secondly, courts generally don’t require insurers to pay damages for their client’s intentional wrongful acts.
Yet, the U.S. District Court for Montana did find that American Reliable was required to defend policyholder Lawrence Lockard in a sexual abuse case. The U.S. 9th Circuit Court of Appeals reversed that decision on Tuesday.
“This was a homeowner’s policy,” Dugger said. “If things had gone the other way, and you had a situation where sexual assault and the aftermath of that sexual assault were covered under a homeowner’s policy, that certainly would change the dynamic, I think, and the scope of exposure.”
Lockard, of Bigfork, Montana, pleaded guilty and was convicted in May 2016 for abusive sexual contact. He was sentenced to six months in prison and ordered to pay $21,872 restitution to the victim. Lockard’s homeowner’s policy with American Reliable had a $300,000 limit for liability coverage.
Lockard supervised a scuba-diving team for the U.S. Fish and Wildlife Service. In September 2015, he led a team of three divers to study trout at a lake in Glacier National Park. Lockard and a female co-worker slept in a cabin while the third member of the dive team slept in a tent outside to avoid disturbing the others with his sleep apnea.
The co-worker drank wine with Lockard after work that day and took medication to help her sleep. She awoke to find Lockard in her bed, touching her breasts and genitals, and trying to remove her clothing.
The woman filed suit against Lockard and U.S. Interior Department for allowing Lockard to retire without punishment after she filed a complaint. She claimed she had been traumatized not only by the sexual abuse itself, but also by Lockard’s comments to colleagues that she had given consent. American Reliable filed a lawsuit seeking a declaratory judgment that it was not liable.
The district court ruled that American Reliable was not required to defend Lockard for the sexual abuse itself, nor for his comments made at work. But the court found American Reliable did have to defend Lockard for any damages caused by the comments he made after he retired. The victim had asserted in her suit that Lockard harmed her by asking colleagues at an American Fisheries Society meeting to “tell his side of the story,” namely that the sexual contact was consensual.
Dugger said the case got complicated when Lockard and the victim signed a consent agreement stating that both agreed he did not intend to cause harm when he told his former colleagues that the sexual contact was consensual. The effect of that declaration was to give the victim a chance at collecting from Lockard’s homeowner’s policy.
The district court ruled that any damages caused by those comments was not intentional. The 9th Circuit disagreed.
“The circumstances leading up to the sexual contact in this case were such that a reasonable person in Lockard’s position could objectively expect his actions to cause Nelson harm,” the appellate court said in its unpublished decision.
Dugger said Montana courts are not known for their friendly treatment of insurance companies, but the Lockard case was an extreme example.
“Insurance is not designed or written to cover intentional acts,” he said.
The victim’s lawsuit against the Interior Department remains unresolved. The district court dismissed the woman’s claim, but she appealed. A decision on that appeal has been stayed pending the final outcome of American Reliable’s lawsuit.
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